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Farmers even gloomier about economy on heightened trade fears

Monday 12th August 2019

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New Zealand's farmers got even gloomier about the state of the economy as the lingering US-China trade stoush and looming Brexit deadline threaten to undermine global trade. 

A net 51.6 percent of 1,432 surveyed farmers - more than half of them dairy farmers - expect economic conditions for farmers to deteriorate in the coming 12 months, compared to a net 40.8 percent in January. A net 3.6 percent deem general economic conditions are currently good, down from a net 20.3 percent in January.

The twice-yearly survey is conducted by Research First on behalf of Federated Farmers. 

"For us, there is particular concern about the global uncertainty and instability arising from fall-out from Brexit and US-China tensions and how that will impact on our key markets and export returns," Fed Farmers economic spokesman Andrew Hoggard said. 

Today, Fonterra Cooperative Group said it won't be paying any dividend for the 2019 season as more than $800 million of impairment charges to a raft of assets worldwide keeps its own balance sheet under duress. The country's dominant milk processor is retrenching under new management after a number of missteps have left it carrying too much debt and holding the wrong mix of assets. 

Farmers have grown increasingly pessimistic over the past two years, and today's survey is the lowest reading in a decade. That's at a time when New Zealand's currency is trading near a multi-year low and the terms of trade remain elevated. 

Profitability deteriorated, with a net 44 percent of farmers currently turning a profit, down from a net 46.7 percent in January. However, they were less pessimistic about earnings over the coming year, with a net 4.1 percent predicting a decline in profits compared to a net 11.4 percent in the previous survey.

Farmers scaled back expectations for farm production with a net 19.7 percent expecting an increase over the coming 12 months, down from a net 24.6 percent in January. Hoggard said that was in part due to concerns about climate change targets if agriculture is put in the emissions trading scheme. 

Almost 24 percent of respondents cited climate change policy and the ETS as their biggest concern, followed by regulation and compliance costs at 19 percent. 

"That result is hardly surprising, given analysis coming through that significant numbers of dairy and sheep and beef farms will be uneconomic if the government continues to pursue methane reduction targets that are far more stringent than are necessary to ensure there is no additional global warming," Hoggard said. 

Debt, interest and banks were the third on the list, and a growing number of farmers intend to deleverage their businesses with a net 27.6 percent of farms carrying debt predicting to reduce those loans over the coming 12 months, up from a net 24.8 percent in January. 

Federated Farmers joined the banking lobby urging the Reserve Bank to dial back plans to require higher capital buffers for licensed lenders, warning that the agricultural sector doesn't need significantly higher borrowing costs. The central bank last week cut the official cash rate to a record low 1 percent. 

Farmers have also cut their spending plans, with a net 6.3 percent expecting to increase spending, down from a net 18.2 percent in January


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